imageCommodities8 hours ago (Jun 29, 2020 09:25AM ET)

(C) Reuters.

By Geoffrey Smith

Investing.com — Crude oil prices shrugged off fears of a demand-killing second wave of Covid-19 infections to trade higher early Monday in New York.

With the U.S. posting two straight days of falling new infections, some of the concerns about fresh lockdowns in major consumption centers in the U.S. have eased.

Consolidation within the exploration and production sector is also helping to support the mood, as the sight of shale pioneer Chesapeake Energy (NYSE:CHK) filing for bankruptcy protection at the weekend acts as a reminder of the existential threat posed by current price levels to much of the U.S. industry.

By 9:15 AM ET (1315 GMT), U.S. crude futures were up 1.0% at $38.89 a barrel, while the international benchmark Brent was up 0.6% at $41.17 a barrel.

The biggest move in the energy complex was, however, in natural gas, where the possible loss of Chesapeake’s production helped to push prices up by 6.4% to $1.64 per mmBtu. Natgas futures had hit an all-time low of $1.48 last week as concern about the still-huge supply overhang dominated.

Quite how much of Chesapeake’s output will be lost is unclear, after the company secured $925 million of debtor-in-possession financing to carry on some operations.

More broadly, the outlook for U.S. output appears to be stabilizing after Baker Hughes’ weekly rig count fell by only 1 when the company posted its latest numbers on Friday. Active oil rigs in the U.S. have fallen by nearly 80% since the start of 2019, from 885 to a record low of 188, according to the oilfield services firm.

Any push higher from the current levels will risk prompting the unloading of millions of barrels of oil from storage, which is at record levels of capacity usage in the wake of the second-quarter collapse.

“Starting from July, stock draws in crude oil and major products will likely commence, drawing 370 million barrels of stocks over the next six months,” said analysts at JPMorgan (NYSE:JPM) led by Natasha Kaneva, in a weekly note to clients. That’s an average of some 2 million barrels a day.

Overseas, Bloomberg reported that five of the biggest Chinese refiners, who collectively import over 5 million barrels a day, are in talks to form a marketing alliance that would give them greater bargaining power vis-a-vis producers and traders. The move may depress margins in Asian markets slightly, especially for Russian and African blends which Bloomberg said will be the first to be affected by joint bidding by the Chinese.

Crude Oil Prices Bounce as Second-Wave Fears Ease a Little

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